Subdued Growth No Barrier To ADMA Biologics, Inc. (NASDAQ:ADMA) With Shares Advancing 36%

ADMA Biologics, Inc. (NASDAQ:ADMA) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. The last 30 days were the cherry on top of the stock's 458% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, ADMA Biologics' price-to-sales (or "P/S") ratio of 13.3x might make it look like a sell right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios below 9.4x and even P/S below 3x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for ADMA Biologics

What Does ADMA Biologics' Recent Performance Look Like?

ADMA Biologics could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think ADMA Biologics' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should outperform the industry for P/S ratios like ADMA Biologics' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 63% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 118% each year, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that ADMA Biologics' P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From ADMA Biologics' P/S?

ADMA Biologics shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've concluded that ADMA Biologics currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Plus, you should also learn about these 4 warning signs we've spotted with ADMA Biologics.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.